Montgomery v. Fidelity & Guaranty Life Insurance

713 N.W.2d 801 (2005) 269 Mich. App. 126

Cynthia R. MONTGOMERY, Plaintiff-Appellant,
v.
FIDELITY & GUARANTY LIFE INSURANCE COMPANY, Defendant-Appellee, and
Aaron T. Binder, d/b/a American Classic Agency, Defendant.

Docket No. 260493.

Court of Appeals of Michigan.

Submitted September 7, 2005, at Detroit. Decided September 20, 2005. Approved for Publication December 1, 2005, at 9:05 a.m. Released for Publication February 16, 2006.

Dan Thomas Ryan, P.C. (by Dan T. Ryan), Shelby Township, for Cynthia R. Montgomery.

Raymond & Prokop, P.C. (by Elaine A. Parson and Jeffrey D. Wilson), Southfield, for Fidelity & Guaranty Life Insurance Company.

Before: HOEKSTRA, P.J., and GAGE and WILDER, JJ.

PER CURIAM.

Plaintiff appeals as of right the trial court's order granting summary disposition in favor of defendant, Fidelity & Guaranty Life Insurance Company.^[1] We affirm.

In April 2002, plaintiff and her decedent husband applied for a life insurance policy with defendant. Although the decedent had a significant cigarette-smoking habit, the application reflects that he had not used tobacco within the previous five years. After defendant accepted their application, it issued a policy^[2] and collected their premiums. In May 2002, the decedent was killed in an automobile accident. Shortly after the decedent died, plaintiff received the policy and filed a claim for death benefits. When defendant reviewed the clinical notes from the decedent's doctor visits and the toxicology report from the decedent's autopsy, it discovered that the decedent had been a smoker and denied the claim. Defendant also refunded the premiums and rescinded the life insurance contract because it found that plaintiff and the decedent had made a material misrepresentation—that the decedent did not use tobacco—on the life insurance application.

Plaintiff argues that the trial court erred in granting defendant summary disposition because there is an issue of fact regarding whether plaintiff or the decedent made a material misrepresentation on the insurance application. We review de novo a trial court's decision on a motion for summary disposition. Rose v. Nat'l Auction Group, Inc., 466 Mich. 453, 461, 646 N.W.2d 455 (2002). When reviewing a decision on a motion for summary disposition pursuant to MCR 2.116(C)(10), "we consider the affidavits, pleadings, depositions, admissions, and other documentary evidence submitted by the parties in the light most favorable to the party opposing the motion." Id. Summary disposition is appropriately granted, "if there is no genuine issue regarding any material fact and the moving party is entitled to judgment as a matter of law." Id.

MCL 500.2218 provides that an insurer may rescind an insurance policy if it discovers that an insured made a material misrepresentation on the application for insurance and that the misrepresentation affected either the acceptance of the risk or the hazard assumed by the insurer.^[3] See Oade v. Jackson Nat'l Life Ins. Co., 465 Mich. 244, 252-253, 632 N.W.2d 126 (2001). The term acceptance of the risk refers to the time at which the contract was made and the insurance concept of risk. In re Certified Question (Wickersham v. John Hancock Mut. Life Ins. Co.), 413 Mich. 57, 63, 318 N.W.2d 456 (1982). An insurer's evaluation of the likelihood of a factor increasing the risk of loss affects its decision to enter into a contract. Id. A misrepresentation on an insurance application is material if, given the correct information, the insurer would have rejected the risk or charged an increased premium. Oade, supra at 254, 632 N.W.2d 126. Because defendant's underwriter stated in his affidavit that defendant would not have issued the policy if it had been aware of the decedent's smoking habit, the misrepresentation about the decedent's smoking habit was material. If a misrepresentation is material, Michigan law does not require that a causal connection exist between the misrepresentation and the death. Wickersham, supra at 67, 318 N.W.2d 456.

Plaintiff asserts that the agent is the one who actually completed the application and that neither she nor the decedent read the application before signing. Plaintiff's argument is misplaced. Whether it was plaintiff, the decedent, or the agent who misrepresented the decedent's tobacco use on the application is not material because plaintiff and the decedent signed the authorization, stating that they had read the questions and answers in the application and that the information provided was complete, true, and correctly recorded. It is well established that failure to read an agreement is not a valid defense to enforcement of a contract. Snyder v. Wolverine Mut. Motor Ins. Co., 231 Mich. 692, 694, 204 N.W. 706 (1925); Marlo Beauty Supply, Inc. v. Farmers Ins. Group of Cos., 227 Mich.App. 309, 324, 575 N.W.2d 324 (1998), mod on other grounds Harts v. Farmers Ins. Exch., 461 Mich. 1, 10-11, 597 N.W.2d 47 (1999). A contracting party has a duty to examine a contract and know what the party has signed, and the other contracting party cannot be made to suffer for neglect of that duty. Komraus Plumbing & Heating, Inc. v. Cadillac Sands Motel, Inc., 387 Mich. 285, 291, 195 N.W.2d 865 (1972), applying Liska v. Lodge, 112 Mich. 635, 637-638, 71 N.W. 171 (1897). Regardless of who actually completed the application, plaintiff and decedent both signed the authorization, attesting to the completeness and truth of the answers, after the application was completed.^[4] Thus, plaintiff and the decedent had the opportunity to review the application and correct any errors before submitting it. We therefore conclude that there was no genuine issue of material fact that the decedent made a material misrepresentation on the application, entitling defendant to rescind or avoid the policy.

Plaintiff also argues that defendant should not be permitted to rescind the contract because its agent had knowledge of the decedent's smoking habit and that this knowledge should be imputed to defendant. Although there is evidence that there were ashtrays in the decedent's home and the home smelled of cigarette smoke, plaintiff has not presented any evidence to suggest that the agent actually saw the decedent smoke or had knowledge that he was a smoker. There is therefore no knowledge to be imputed to defendant. Even if the agent did have knowledge of the decedent's smoking habit, plaintiff and the decedent had the opportunity to review the application and correct any errors before submitting it.

Affirmed.

NOTES

[1] Because defendant Aaron T. Binder, doing business as American Classic Agency, is not a party to this appeal, the term "defendant" refers only to Fidelity & Guaranty Life Insurance Company.

[2] Plaintiff asserted that, although she and the decedent had applied for a $244,000 policy, defendant issued a $50,000 policy. In her complaint, plaintiff claimed that the agent and defendant unilaterally changed the amount on the application, thereby reducing the amount of the policy. However, in this appeal, plaintiff does not raise an issue regarding this alleged reduction in the policy amount.

[3] We note that acceptance of the risk and hazard assumed are terms with different meanings. In re Certified Question (Wickersham v. John Hancock Mut. Life Ins. Co.), 413 Mich. 57, 62, 318 N.W.2d 456 (1982). For a representation to be material to the hazard assumed—the death of an insured in this context—it must contribute to the death in a substantial manner. Id. However, this appeal only concerns whether the misrepresentation was material to acceptance of the risk.

[4] Plaintiff relies on Smith v. Globe Life Ins. Co., 460 Mich. 446, 597 N.W.2d 28 (1999), and asserts that the signed application constitutes only prima facie evidence of misrepresentation. However, we distinguish Smith because there is no dispute that the agent actually completed the application. Furthermore, plaintiff and the decedent signed the authorization after the application was completed, thus attesting to its truth and completeness.